The Occupy movement was widely lampooned by critics for failing to bring forward a coherent set of demands. But a random survey of participants in the protests that spread across the country late last year would likely turn up a large number who agree that ending the recognition of corporations as legal “persons” is a critically needed reform. Ballot measures in Boulder, Colorado and Madison, Wisconsin calling for an end to corporate personhood passed last year. A popular poster seen at Occupy events read, “I’ll believe corporations are people when Texas executes one of them.” While humorous, it is fortunate Texas does not execute as many persons every year as it does corporations. That corporations in Texas, and across the country, are recognized as legal persons makes the process of dissolving them far easier and less costly than would be the case otherwise. Filing a form and paying a nominal fee are practically all that is required. In fact, corporate personhood allows business firms to enter into contracts, to sue and be sued, to hire and fire workers, to own other corporations, and, most notoriously, to engage in free speech.

The obvious convenience of recognizing the corporation as an entity separate from its investors leads many on the right and even some on the left to defend the concept and denigrate its critics. Conservative UCLA law professor Stephen Bainbridge, for example, lambasted Occupy’s “moronic campaign against corporate personhood,” noting that “[a]lthough the corporation’s legal personality obviously is a fiction, it is a very useful one.” Meanwhile, left-wing writer Doug Henwood expressed concern with the “fixation” of some in Occupy “on the legal status of the corporation at the expense of some other, more important things.” Henwood reads this concern with personhood as a possible proxy for concerns about size and reminds his fellow Occupy activists that, after all, big corporations build “computers and fast trains” and thus represent economic progress.

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Nonetheless, the recognition of corporations as persons, which reaches back at least as far as the 1886 decision of the U.S. Supreme Court in Santa Clara County v. Southern Pacific Railroad, raises challenging questions about the nature of modern economic organization. These questions, relegated for many decades to obscure corners of legal academia, were highlighted, though to a certain extent misunderstood, by the modern Supreme Court’s controversial decision in 2010 in Citizens United v. Federal Election Commission. Untangling the doctrinal confusion around the concept of corporate personhood must begin with the proper framing of these key court decisions. Once the concept itself is clarified it is more straightforward to consider its impact on society at large. It should then become clear that the rationale has long outlived its relevance and social value. To paraphrase Marx, the integument of corporate personality has been burst asunder by the reality of modern capitalist production, thus, the knell of corporate personality sounds.

A CENTURY before the Santa Clara Valley, south of San Francisco, became known around the globe as Silicon Valley, it was ground zero for the titanic conflict between railroad “robber barons” like Leland Stanford and Charles Crocker and legions of struggling small farmers, mixed in with some opportunistic land swindlers, looking to get by after the end of the Civil War. Historian of the American West Richard Maxwell Brown, noting Marx’s keen interest in California events at the time, described the confrontation as a “revolutionary situation.”

The conflict raged across the state of California and made its way into the national consciousness. Frank Norris’s populist novel The Octopus: A Story of California, published in 1901, captured the ethos of the period, chronicling in fiction the low point of the conflict: the Mussel Slough Tragedy of May 11, 1880. On that broiling hot day on a farm in the San Joaquin Valley some 150 miles south of Santa Clara, a gun battle reminiscent of the O.K. Corral broke out. Two groups confronted each other: one a small group made up of two land buyers armed with a shotgun and a court order, accompanied by a U.S. marshal and a notorious Southern Pacific Railroad employee, and the other a larger informal “militia” of local homesteaders (or “squatters,” if you accept a Railroad view of the events). The homesteaders were angered that the Railroad was not following through on its apparent promise to sell them good title to their land at relatively low prices. After a brief but fierce gun battle, one of the land buyers and five of the homesteaders lay dead or mortally wounded. The second land buyer, a marksman who apparently fired the deadly shots against the farmers, fled but was hunted down and killed by a second vigilante group.

This conflict was waged not just on rural California farmland but also in nearby urban courthouses. The same federal judge who had provided the U.S. marshal an eviction order for Mussel Slough, Lorenzo Sawyer, presided over the subsequent trial of five of the surviving farmers accused of resisting that order. Sawyer heard dozens of other eviction cases brought by the Southern Pacific in the 1870s and early 1880s and used them as an opportunity to help undermine the theory that corporations are created solely by state charter and hence must be subject to state control. And it was Sawyer who sat alongside his “circuit riding” colleague and friend U.S. Supreme Court Justice Stephen Field in the Santa Clara case when it was heard by the California circuit court in 1883. The battle between farmers and the railroads had by then shifted to the state legislature, which attempted to use its taxation power to rein in the “Octopus.” Field’s detailed defense of the application of the Fourteenth Amendment to corporations was, in essence, adopted by the Supreme Court itself three years later when it ruled in favor of the Railroad.

Sawyer was a shareholder in the Railroad and socially close to Crocker and Stanford. Both Sawyer and Field were close friends of the Railroad’s legal counsel, a leading author of the version of the “corporation as person” theory that Field would later adopt. Both judges had risen through the rough-and-tumble politics of California in the post–Gold Rush era. Both were former justices of the California Supreme Court, and Field became that court’s Chief Justice. While on the state court Field wore a jacket specially designed to conceal two pistols he carried in self-defense. A fellow judge once challenged him to a duel, though neither ended up firing a shot. Field was elevated to Chief Justice because his predecessor, David S. Terry, had killed a U.S. Senator in a duel. Terry was a well-known advocate of the interests of the Mussel Slough homesteaders and became a fierce opponent of Field inside the California Democratic Party. (Incredibly, several years after the events at Mussel Slough, Terry was shot and killed by Field’s bodyguard as Terry confronted Field, apparently because of an unfavorable ruling in a divorce case involving Terry’s wife and a wealthy silver baron who was allegedly her first husband.)

Field, appointed to the high court by Abraham Lincoln upon the recommendation of Leland Stanford, undertook an ambitious national agenda: first, to use the new Fourteenth Amendment’s limits on state powers to protect not just freed slaves but corporations, the emerging institutional form for a new era of private as opposed to state-led capitalism; and, second, to build on the success of that effort by undertaking a campaign for the presidency itself. His success in the former, however, would undermine his political acceptability for the latter. Farmers and workers blocked his road to power in the California Democratic Party. Revenge, nonetheless, was his. After succeeding in Santa Clara he sided with the majority when it applied the Fourteenth Amendment in the Lochner decision (1905) against protective state labor laws, and yet declined to use the same amendment to undo Jim Crow laws on railways in Plessy v. Ferguson (1896). And for good measure, Field wrote the majority opinion in the racist Chinese Exclusion Case (1889), despite a pre–Santa Clara record of using the new amendment expansively to defeat California’s attempts to discriminate against Chinese immigrants.

UNFORTUNATELY, A landmark essay about the Santa Clara case is likely responsible for having discouraged a generation of scholars from exploring deeply the connections between this vital social history and the modern concept of the corporation as a legal person. Harvard legal historian Morton Horwitz argued in a widely cited, if less widely read, 1985 essay, “Santa Clara Revisited,” that the case was far less significant than was often thought. He contended that the theory the Court implicitly adopted, articulated more fully by Field in his circuit court opinion, was not the theory of corporate personality that we recognize today. In fact, Horwitz contended, the Supreme Court of 1886 was “still actively suspicious of corporate power and the emergence of concentrated enterprise” and thus would have been hostile to a theory of the corporation as a distinct and natural entity standing apart from its shareholders.

Yet it is hard to imagine a corporation at the time of Santa Clara that was more powerful, and more centralized in its manner of governance, than the Southern Pacific Railroad. The firm had hundreds of shareholders and bondholders, thousands of employees, and a relative value that would place it in the category today of Exxon or GE. It is also hard to imagine a jurist more conscious of corporate power and its social impact at that time than Justice Stephen Field, described by one mid-twentieth-century legal scholar as “an apostle of reaction.” As Field wrote to a fellow federal judge at the time the Santa Clara case was making its way through the courts:

I have not hesitated to explain the true situation of things in California to the President….I have let [him] understand that the question was not whether A or B should have a particular place but whether the men of order and law, men who believed in the great institutions of society should have the ascendancy in the State, or whether the outcome of the sandlot [a reference to members of the radical San Francisco–based Workingmen’s Party], and the agrarian and nihilistic element should control…the real question [is] between civilization on the one hand and anarchy on the other….

Horwitz attempted, however, in the “deconstructionist” style of the faux left-wing Critical Legal Studies school to which he belongs, to dethrone the place that the Santa Clara decision had always held as “one of the prominent symbols of the subservience of the Supreme Court during the Gilded Age to the interests of big business.” In the course of doing so, Horwitz claimed American legal theory suffers because it is so often applied in a “historical vacuum.” Yet Mussel Slough and the decades-long battles among the state of California, its farmers, the judiciary, and the railroad robber barons is absent from his account altogether.

Nonetheless, Horwitz’s work is important for laying out a historical account of three of the four critical stages in a complete theory of the legal status of corporations: first, the “artificial being” approach that dominated until Santa Clara; second, the short-lived “partnership” or “aggregate” approach of Justice Field in his circuit opinion, adopted without comment by his brethren when Santa Clara finally reached the Supreme Court; and third, the post–Santa Clara triumph in the early decades of the twentieth century of the modern “natural entity” theory that gave more robust recognition to corporations as legal persons distinct from the aggregate of their individual shareholders.

Horwitz argues that the second of these, the “partnership” theory relied upon by Field, did not “represent a significant departure from American constitutional jurisprudence.” This does an intellectual injustice, however, to the life project and significance of Justice Field. The critical step that he accomplished with the aggregate approach was to sever the link between the corporations emerging in his era, the era of the Octopus, from those business firms organized in the earlier state charter era of, for example, private turnpike corporations. If Field’s approach did not prevail then it would have remained difficult for corporations to resist the state’s use of police powers to regulate these entities as it saw fit—whether in the service of populist agrarian movements, progressive labor legislation, or racist exclusionary laws.

The aggregate theory, therefore, viewed the corporation as protected by the Fourteenth Amendment not so much because the corporation itself was a person but because natural persons, its shareholders, made up the corporation. As Justice Field wrote in a companion case to Santa Clara, the court had to “look beyond the artificial being [a corporation chartered by the state] to the individuals whom it represents.” Once freed of the shackles of a state charter, once viewed as private and even democratic associations of individuals, corporations were free from the attempts of those same states to impose “discriminatory” regulations on them. From there it was a much easier step to recognizing these free associations as entities in their own right, which today we would understand as elements of civil society, independent of the state. It was also a necessary step, as Horwitz explains, because the courts had to deal with “less material, less property-centered claims [where]…it was difficult to reduce the constitutional claim of the corporation to the constitutional rights of the shareholders.”

If Horwitz understates, in my view, the significance of Field’s aggregate shareholder–centric view, he misses entirely its potential relevance to the fourth view of the corporation that was taking hold, even in the seminar rooms of Horwitz’s own law school, while he was writing his iconic article. Horwitz ends his account with the emergence of the centralized “natural entity” theory, solidly in place by the late 1920s, conveniently just in time for the attempt to rein in the new managerial class said by some New Deal intellectuals like Adolf Berle and Gardiner Means to have been responsible for so many ills. But by the early 1980s the natural entity version of the corporation that was critical to New Dealers was under sustained attack. Berle and Means had theorized the separation of the ownership and control in the modern corporation, but this understanding gave way to an “agency” theory of the corporation that reduced the corporate person to a mere convenient legal fiction.

The corporation, the agency theorists argued, was nothing more than a “nexus” of contractual relations among the various contributors of inputs to the entity, including capital, technology, and labor. Each could negotiate the terms and conditions of those contracts as necessary within the constraints of surrounding market forces. There was no problem of corporate power as long as those markets were kept competitive. That these markets might lose competitive fervor was, indeed, a problem for political economy but it was not a fundamental problem for corporate theory. This was, in a sense, a restatement of the Field “conception,” in Horwitz’s words, “of the corporation as a creature of free contract among individual shareholders,” but this time ready made for a world of larger, more comprehensive, and more competitive markets for managerial talent, specialized technology, and flexible labor.

Justice Field took the corporation out of the hands of the state and put it in the hands of freely associated capitalist entrepreneurs. The Progressive era’s legal thinkers helped legitimate the collapse of legal constraints on the new giant trusts and conglomerates while at the same time looking for ways through law to constrain the new “kings of industry.” The “law and economics” school that rose to prominence in the Reagan/Thatcher era of smaller government and deregulated product and labor markets returned the corporation to freely associating entrepreneurs, properly disciplined by surrounding vigorous markets for capital, corporate control, and managerial talent. The transition from Santa Clara Valley to Silicon Valley could now be completed. And it is at the end of this long historical and theoretical process that the debate over Citizens United emerges.

DESPITE THE effort of conservative law and economics theorists to deconstruct the corporation out of existence in favor of freely contracting individuals, conservatives in actual seats of political power have continued to act as if the corporation is a real entity deserving of legal protection. Until Citizens United, perhaps the most striking case involving free speech for corporate entities was First National Bank v. Bellotti in 1978, when the southern reactionary Justice Lewis Powell wrote the majority opinion in another 5-4 decision. Powell tried to slide around the question of whether the corporation itself had speech rights by claiming that it was the speech not the entity that was being protected. Powell nonetheless cited Santa Clara for the proposition that the Court had long ago recognized corporations as persons and that simply because the speech in question comes from a corporation does not alter the Constitution’s protection of it under the Fourteenth Amendment. This is no less clever an approach than what Justice Field attempted when he tried to distinguish between the wealthy investors in the Southern Pacific Railroad and the corporation itself. Neither decision really fooled anyone. Powell, of course, had an agenda as ambitious as that of Justice Field. His impact was felt on affirmative action in Bakke as well as in a series of decisions that significantly weakened federal securities laws.

Although it was completely unnecessary to his opinion, Powell, for good measure, reminded the litigants and corporate reformers that there could be no turning back the clock to the era when corporations were “creatures of the State” with “only those rights granted them by the State.” This was also an attempt to dismiss the dissent of Chief Justice William Rehnquist, who made a valiant if lonely attempt to restore what Horwitz might call “old conservatism” to the Court by reviving the artificial entity theory of the corporation, where the business firm is viewed solely as a creation of the state and thus subject to that state’s regulatory authority.

The dissent in Bellotti by Justice White, joined by Justices William Brennan and Thurgood Marshall, was rooted, if unconsciously, in the real entity view that took hold in the Progressive era. White noted that mechanisms inside the corporation had centralized power such that one could no longer find a reliable link between the corporation and the desires of its individual shareholders. The natural person element of the Field aggregation theory had indeed disappeared, even if one wanted to imagine the corporate entity now as a mere “nexus of contracts.” Corporate speech, White argued, is “not fungible with communications emanating from individuals” and thus must be examined carefully for the potential “threat” it poses to the “functioning of free society.” It is precisely this centralization of power in a market economy and its break with any realistic notion of genuine free association that must lie at the center of any attack today on the constitutional rights of corporations rooted in personhood.

For the majority in Citizens United, the case was in essence a replay of Bellotti. They relied on Powell’s opinion to bolster their rejection of the restrictions on speech emanating from corporations. To the majority the social reality of centralized corporate power, standing apart even from shareholders who nominally “own” their corporations, was nonexistent. Justice Kennedy wrote, “All speakers, including individuals and the media, use money amassed from the economic marketplace to fund their speech. The First Amendment protects the resulting speech, even if it was enabled by economic transactions with persons or entities who disagree with the speaker’s ideas.” The homeless and the unemployed, in other words, are as free to amass money in the marketplace and to express their views as Exxon, Apple, or, for that matter, the nonprofit Gates Foundation. Thus, Anatole France: “The law, in its majestic equality, forbids the rich and the poor alike to sleep under bridges, to beg in the streets, and to steal bread.”

It is true, of course, that not all corporations are as wealthy and powerful as Exxon. In fact, most are not, and most will fail and dissolve, using the convenience of corporate personhood to do so. Yet that is precisely the point. Not all corporations are the same and the current view of corporations as persons fails to distinguish among them. For the 99 percent of for-profit and nonprofit corporations, constraints such as those examined in Citizens United may make no sense. But when it comes to the 1 percent who dominate the “marketplace of ideas,” it is hard to imagine a genuine democracy without such restraints. What might be considered an economically convenient mechanism can also be used to distort our democratic culture, which has long stood on the basis of recognizing the value of a diversity of views expressed by freely associating individuals. And corporations, as the dissent by John Paul Stevens in Citizens United reminds us, “are not themselves members of ‘We the People’ by whom and for whom our Constitution was established.”

Unfortunately, the dissent avoided explicitly any interest in a coherent theory of the modern corporation to underpin its claim. That weakens the political and legal potential in their opinion. The need for a theory that explains the vast inequities of the modern corporate economy is great. The Occupy movement has performed a valuable service in putting that debate back on the table for public consideration.

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